Bank Indonesia's policy rate stands pat at 5.75%

It is struggling to fight a looming large current account deficit.

According to Nomura, Bank Indonesia (BI) kept its policy rate on hold at 5.75%. We believe BI has not changed its stance, maintaining a tightening bias as it combats a large, potentially persistent current account deficit.

Here's more from Nomura:

That said, the decision also reaffirms our view that BI will likely continue to slowly tighten, and this is unlikely to involve any increases to the policy rate, at least over the rest of this year. Instead, the tightening will likely come in the form of further macro-prudential measures to cool domestic consumption and more excess liquidity absorption to guide interbank rates back toward the policy rate (from the low end of the policy corridor).

We believe BI‟s current stance is justified given inflation remains within the target. Indeed, BI said inflation is likely to stay within the 3.5-5.5% target for both 2012 and 2013. We maintain our forecast that BI will maintain its 5.75% policy rate for the rest of the year.